Concho, Private-Equity Investors Seek Buyer for Permian Pipeline

By Ryan Dezember and Dana Mattioli

The owners of a major oil pipeline system in West Texas are looking to cash in amid a boom in deal and drilling activity in the region’s Permian Basin.

Oil explorer Concho Resources Inc. and private-equity firm Energy Spectrum Capital have enlisted bankers to look for a buyer of their Alpha Crude Connector LLC, according to people familiar with the matter.

Alpha Crude, which consists of some 400 miles of pipelines running through parts of Texas and New Mexico, could fetch as much as $1 billion, some of the people said. That is well in excess of the roughly $260 million invested by Concho, one of the region’s largest oil producers, and Energy Spectrum, a Dallas investment firm, according to securities filings.

The sales effort comes amid a land grab in the Permian as oil explorers, including Concho, have rushed to stake claim to some of the most prolific oil fields in North America. Activity in the barren plains of West Texas has surged at a time when low oil prices have made drilling in many other regions uneconomical.

Since May, the number of rigs drilling in the Permian Basin has risen 58% to 212, or roughly half of all rigs operating in the U.S., according to Baker Hughes Inc.

Alpha Crude, which was completed in April, is capable of transporting more than 100,000 barrels a day and has capacity to store three times that much oil. A so-called gathering system, Alpha Crude connects production fields to larger pipelines and a rail terminal that deliver crude to market. It runs through the northern part of the Delaware Basin, which is a relatively lightly drilled part of the Permian Basin where deal activity among exploration and production companies has been particularly frenzied.

Concho invested in the project to support its drilling in the area and is one of the primary users of the Alpha Crude Connector.

Pipeline deals also have picked up recently. So far this year there have been $14.8 billion worth of U.S. pipeline mergers and acquisitions announced, up from $8.7 billion in all of 2015, according to Dealogic.

The activity has been spurred in part by rising confidence in oil prices, which have largely stabilized at around $50 a barrel since May, and by signs that investors are returning to master limited partnerships, or MLPs, the lightly taxed entities that own many U.S. pipelines.

Write to Ryan Dezember at ryan.dezember@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

Breaking the story

Ryan Dezember and Dana Mattioli reported exclusively that oil explorer Concho Resources and private-equity firm Energy Spectrum Capital have enlisted bankers to look for a buyer of their Alpha Crude Connector, which consists of some 400 miles of pipelines running through parts of Texas and New Mexico.

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